Shorts Losing War to the Bulls - Dollar Short

Published on August 21, 2018 @ 1:59pm

Yesterday, it was another day of bullish activity yesterday across all of the major indices - with tech and the NASDAQ lagging its major counterparts. Today, we're seeing even more follow through, as it appears the markets are banking on some positive news regarding tariffs soon, but the biggest reason for the underlying bullish trend is stocks are still technically taking the long-term path of least resistance.

Fundamentally, when we look around the entire market landscape, there's no question tech in general is among the most expensive sectors right now. However, there's still plenty of underlying value in some tech and many non-tech names, which is why we continue to believe the DOW and the S&P 500 will lead the markets' next leg up.

On strictly a short-term basis, it appears the S&P 500 is now headed for roughly the 2,900 level, while the DOW is likely to achieve the 26,000 level any day now. It will be at those two key pivot points we're going to find out if volatility will rear its ugly head again, or not.

Therefore, for those who got long UDOW earlier this month when we suggested an entry, just make sure to move your protective stops up in the idea once the DOW gets closer and closer to the 26,000 level. We're still maintaining our long-term target on the DOW of 27,000, but that target isn't likely to be achieved without at least a little volatility along the way.

We sound like a broken record with our ongoing long-term bullish bias, but until these markets finally decide to show some semblance of a technical top, we're still convinced they're headed for new all-time highs. How they make those new highs will be far more important than the technical events themselves though.

Meaning, if and when these markets start screaming to the upside with no real breathers along the way, that's when we'll start to get a little concerned. Why? Because long-term market tops are usually preceded by jubilation, buying hysteria, and just a little too much complacency.

Yet, there's still enough caution out there right now surrounding many global market and economic concerns, so it's important to remember Wall Street historically does have a habit of climbing a wall of worry before the rug finally gets pulled.

Oil and gold are both starting to behave much better than what we've seen for a few weeks now, however, a few good days of bullish activity clearly isn't enough to suggest commodities are finally ready to assist the markets' next leg up.

What we're seeing is encouraging, but commodities in general aren't out of the woods quite yet. However, it does finally appear the dollar is starting to cooperate by moving lower over the last few days, which is clearly helping commodities on at least a short-term basis right now.

Provided here is a daily chart of the U.S. Dollar Index, and as you can see, it has been weakening over the last few days after hitting our multi-month target of 12,200 (blue horizontal line). As a matter of strong opinion, for those interested in getting short the dollar now via an entry into UDN, the primary bearish ETF tracking the dollar, or long the Euro via ULE, now wouldn't be a bad time to consider either idea in anticipation of more weakness ahead for the dollar.